AT THE PROPRIETATEA FUND Franklin Templeton playing by Elliott's rules

"Franklin Templeton" will remain in charge at the Proprietatea Fund, for a new two year term, but from now on, there will be a sword hanging above its head.

On Friday, the shareholders of the Fund agreed to extend the term of the fund's manager beyond September 2014, but only by two years and subject to specific terms.

The pressure that American hedge fund "Elliott Associates", the largest shareholder of the Proprietatea Fund, is laying on the Fund to return the money to the shareholders seems to have reached a peak.

Thus, if it wants to keep managing the Proprietatea Fund, "Franklin Templeton" must keep the discount between the price of the stock and the NAVPS below 15%, for at least two thirds of the period between October 1st, 2014 and June 30, 2015, and the NAVPS must increase by June 30, 2015. The shareholders voted for these terms, proposed by "Elliott", to be included in the management contract which will be negotiated between the Committee of Representatives of Shareholders and Franklin Templeton.

• Additional fee for the exceptional distributions to shareholders

The manner in which the manager of the fund gets compensated will also change.

According to the decision of the shareholders, "to the extent that it is allowed by the law and the applicable regulations, the total fee which will be paid to Franklin Templeton will include a base fee dependent on the market capitalization of the company and an additional variable fee depending on the value of exceptional distributions made to shareholders during the reference period".

The shareholders of the Proprietatea Fund had already voted once in favor of the payment of an additional fee to FT, had the latter accelerated the liquidation of the companies in the portfolio and returned the money to shareholders, but the former Romanian National Securities Commission (CNVM) (currently the Financial Oversight Authority - ASF) did not agree to this amendment of the articles of incorporation of the Fund.

Iain Gunn, the representative of Elliott, said he was pleased with the actions of Franklin Templeton, over the last few months, possibly speaking about the acceleration of the stock buyback program, through an offer addressed to the shareholders, at a price of 1 leu/share. He did however insist on the need to set strict performance criteria for the manager of the fund.

According to some sources present at the General Shareholder Meeting, the representatives of Franklin Templeton have implied that they can not guarantee the fulfillment of those conditions, but that they will do their best.

The new stock buyback program of 252,858,056 shares or 10% of the company's share capital, which was approved on Friday by the shareholders of the Proprietatea Fund will certainly help.

• Gheorghe Piperea: "The required business style is preparing the liquidation of the Proprietatea Fund, within two years at the most"

Lawyer Gheorghe Piperea has a negative opinion when it comes to the path that the Proprietatea Fund is engaging on.

He said: "What bothers me is the imposed style of doing business, which is laying the groundwork for the liquidation of the Proprietatea Fund, within two years at the most. This should concern the entire Romanian stock market". Mr. Piperea considers that those who praise the Fund expect it to exist for a long time from now on, but in his opinion, judging by the Fund's recent behavior, the opposite is actually the case.

• Nicu Moroianu, "BT Securities": "Once the bought back shares are cancelled, the discount between the price of the shares of the Proprietatea Fund and the NAVPS will shrink"

Nicu Moroianu, executive manager of "BT Securities", considers that "Franklin Templeton" is very likely to secure a new term as a manager of the Proprietatea Fund. In his opinion, what is more important is what will happen afterwards: "Once this new term expires, the mission of those coming in to manage what will be left of the Proprietatea Fund, assuming there would be anything left to manage, will be increasingly difficult".

Given the approval of a new stock buyback program, Mr. Moroianu considers that once those shares are cancelled, the discount between the price of the shares of the Proprietatea Fund and the NAVPS will decrease.

• Simion Tihon, "Prime Transaction": "The pressure that the largest shareholder of the Proprietatea Fund is laying on the manager of the Fund is being confirmed"

Simion Tihon, broker at "Prime Transaction", considers that there have been no surprises in the decisions made in the General Shareholder Meeting of the Proprietatea Fund. However, the pressure the largest shareholder of the Fund is putting on the manager of the Fund has been confirmed.

The broker has commented: "The Proprietatea Fund is already trying several methods to reduce the discount that the shares are trading at, and at least so far, they have proven effective".

• Adrian Simionescu, "Vienna Investment Trust": "The discount will continue to shrink"

Adrian Simionescu, the CEO of "Vienna Investment Trust", says that it is admirable that FT has succeeded in raising the market price of the stock of the Proprietatea Fund, which is something that has been requested by shareholders.

"It was natural for the shareholders to grant their trust to "Franklin Templeton", Mr. Simionescu further said. "The discount has already decreased and I think that it will continue to shrink".

• The reduction of the share capital will have to wait

The General Shareholder Meeting did not meet the 50% quorum needed for the approval of the proposal to reduce the share capital of the fund by 676.9 million lei, from 12.861 billion lei, and the distribution of the money to the shareholders, by reducing the face value of the shares from 1 leu to 0.95 lei.

This item is scheduled to be discussed today, on the second convening. If the quorum of the General Shareholder Meeting isn't met today either, the manager of the Fund will summon a new meeting to discuss that topic.

On Friday, the shareholders also voted to ratify and approve all the decisions adopted by the extraordinary General Shareholder Meetings and of all the legal acts concluded, adopted and issued in the name of the Proprietatea Fund through "Franklin Templeton", between September 6th, 2010 and November 21st, 2013.

This item is constantly present on the agenda of the General Shareholder Meetings of the Proprietatea Fund, after lawyer Ioana Sfîrăială, minority shareholder, disputed the decisions of the General Shareholder Meeting in court, claiming that "Franklin Templeton" is not the rightful manager of the Fund.

Some of the dozens of lawsuits were won by the Proprietatea Fund, but Ioana Sfîrăială scored some victories of her own.

Early this month, the Bucharest Court of Appeal decided to annul a decision of the shareholders of the Fund, by which "Franklin Templeton" was appointed as the manager of the Fund. More specifically, the Court has allowed the appeal filed by lawyer Ioana Sfîrăială against a civil ruling of December 2011 and declared the nullity of the Extraordinary General Shareholder Meeting no. 5/29.11.2010, by which the articles of incorporation of the Proprietatea Fund had been amended.

Ioana Sfîrăială obtained in court the cancellation of the General Shareholder Meeting by which Franklin Templeton was designated as a manager, based on a claim that the Meeting had not been convened according to the required formalities.

Lawyer Gheorghe Piperea considers that "Franklin Templeton", as a manager of the Proprietatea Fund, is facing a thorny legal issue. He said: "There is a rightful principle, which says that if a previous act gets annulled, the subsequent acts get annulled as well (< Resoluto iure dantis, resolvitur ius accipientis >)".

In Friday's General Shareholder Meeting, the shareholders of the Proprietatea Fund have rejected the amendments to the Articles of Incorporation suggested by the ASF and approved the budget of the Proprietatea Fund for 2014.

• The small shareholders, unhappy that "Elliott" was able to sell more upon the buyback offer

Friday's general shareholder meeting happened after the accelerated buyback of 600 million shares of the Proprietatea Fund, at a price of 1 leu per share. The small shareholders have criticized "Franklin Templeton" because the large shareholders were able to subscribe more than 600 million shares, which led to a lower allocation ratio.

Since the beginning of the year, the stock of the Proprietatea Fund (FP) has risen 47%, closing Friday's trading session at 0.81 lei/share.

The Proprietatea Fund has shares in important companies, such as OMV Petrom (18.99%), Hidroelectrica (19.94%), Romgaz (14.99%), Nuclearelectrica (9.72%) Transgaz (14.98%), Transelectrica (13.49%), Conpet (29.7%), GDF Suez Energy România (12%).